A few months ago I wrote a column giving advice to Larry Page when it was announced that he would be taking-over once again as CEO of Google. Not that Google is especially in trouble, but it is a big job getting 50,000 feet marching in the same direction. In order to make that happen I urged Larry to create startups within Google. And sure enough, as he took over the top job last week and started announcing changes, one of the most radical was something very similar to the “five guys in a rented apartment” scheme I had proposed. Who knows, maybe Larry reads this rag, but probably not.

While I say Google isn’t in trouble, that doesn’t mean the company isn’t stuck. Google is very stuck. Like any successful and mature tech enterprise they are very adept at leveraging market advantages. PageRank, AdWords, AdSense are the big money-makers still. Everything else — everything else — is a page view generator and nothing else. Gmail, all the web apps, YouTube — all they are for is generating page views and displaying ads. There hasn’t been a successful new business at Google for more than a decade (no, Gmail is not a business, nor is Android). So Google is still a fabulously successful enterprise and great at making money, but it is a stuck very successful enterprise.

Google hasn’t shown it is very good at inventing new businesses internally and they aren’t good, either, at buying businesses externally. Name one business Google has purchased and taken to a new level of greatness. They tend to buy companies for the people and then throw away or forget the technology. Name one CEO or CTO hired by Google with an acquisition who is punching out products today. It can’t be done. Graham Spencer, Rohit Khare, Max Levchin just to mention three: what happened to them?

They disappeared. I’m sure they are plenty busy with this and that, but they are also invisible.

So Larry Page has his work cut out for him and I commend him on his first week on the new job. Streamlining management, making Google’s social business a priority for everyone, coming up with new ways for Googlers to start their own businesses inside the company — that’s all great. But it isn’t enough.

Take that internal startup program, whatever it is being called. In principle it is a great idea, but the implementation is flawed. The internal startup founders, for example, are given two years to make their business work — two years before they have to deliver anything. That’s crazy.

Maybe it takes two years for Google to delivery anything, but Google is now a big stupid company with poor communication skills to boot — in many ways a worse Microsoft than Microsoft. A startup that hits its first deadline at 24 months is a startup that is over-capitalized and too lacking in fear.

Listen, these Google engineers with their startups will have already been thinking about their idea for months or years before they ever submit it to management. They need to deliver a prototype in two months, a solid beta product in six months, and have a full release in 9-12 months, tops. After all, they aren’t spending any time at all looking for money, and that’s what startup CEOs do probably half of their time.

Giving them two years is saying the engineers should take a year on the beach first, then get to work.

And if the startup idea fails then the Googlers working on it should fail, too. They should be fired. Now there’s a proper incentive to succeed, not this fantasy startup thing.

Maybe Larry has forgotten all this, maybe he’s just slow, but he’s also wrong. This internal startup program may well keep people from leaving Google for awhile, but it won’t generate many new businesses, because it creates the wrong atmosphere — one that actually encourages failure.

61 Comments

I don’t know what criteria one defines a “new level of greatness”, but it sounds like Android was a successful purchase and that Google was instrumental in its widespread adoption by the major mobile companies. And YouTube may not have been able to scale to its current state without Google’s resources. But maybe the story of those companies is not so simple?

I agree with you about Android. There’s no dispute that Android was Google’s single most successful acquisition. Placing Andy Rubin as a direct report to Larry was a smart idea.

Also, from rumors I’ve heard, Levchin has autonomy with his unit at Google. They recently released “Disco” ( http://www.disco.com ), which is a group messaging app. What’s unique about that is the app was released for iOS, not Google’s Android, and integrates with Facebook.

Nobody I know is smarter than Max Levchin (just ask him) so it is great to hear he is having some success at Google. But I hardly think he’ll stay past his contractual obligation, do you? The Google I know would be stifling for Max.

Bill H
April 10, 2011 at 9:24 pm

I dunno, Bob. First, I think the assumption that every enterprise that starts up based on a new disruptive business idea MUST attempt to grow until it reaches world domination status leads to a lot of problems. I know, competetive people are the ones who get these things going, and they will alway compete. But, if bankers haden’t been intent of becoming the biggest on the block, and instead had been satisfied with a little smaller piece of a safe pie, they wouldn’t have stooped to such foolishness as liar loans, etc. So, would the world be a sadder place if Google decided that they have one really good business, focused their efforts on staying at the top of that game, and paid out good dividends to their shareholders for twenty years or so?
Secondly, what about Google or any large corporation makes it a good incubator for the next new great idea. In my experience, the people who can say ‘yes’ are way outnumbered by those who can say ‘no’ in a corporate environment. If someone really has an idea that can likely be built into a business that would be significant to Google, why in the world should the “five guys in a rented apartment” not move to Omaha for a couple years to have their ideas, and start building a business rather that turn the idea over to Google for salaries? Is Google offering these startup teams terms that include equity stakes in the ‘new business’ similar to what they could retain as independent entrepeneurs? (Nothing special about Omaha, but it’s got a lot lower cost of living that Silicon Valley ;).
I need to read the book, but how many Accidental Empires were started by corporate employees working for salaries at existing major corporations?

dg
April 11, 2011 at 1:58 am

> how many Accidental Empires were started by corporate employees

Lots, except its not by accident. Creating billion dollar startups happens all the time inside conglomorates like General Electric where executives are routinely given orders like “here’s $10M, go build a $1B business in Asia in 3 years or you’re fired”.

Larry didn’t take the job to STOP Google from growing. Nor does Larry’s hero Warren Buffet see zero growth as a goal at Berkshire Hathaway. If you take command of a public company your job is to grow earnings, simple as that. Google says it will hire something like 6000 people this year, which is definitely a GROWTH strategy. So let’s just forget about the first part of your argument, which isn’t important to most people and certainly not to Larry.

About the second part, yes large companies can build big new businesses. Apple has done it several times. Microsoft did it with xBox despite cultural problems of its own. Several readers here are arguing pretty persuasively that Google has done it with Android. I just think that if Larry is going to head down that road he has to do it like he really means it.

cschneid
April 12, 2011 at 5:56 pm

Say, Bob, how about let’s _not_ forget about that first part of Bill H’s argument in favor of your myopic interpretation of Jack Welsh’s now recanted comments about shareholder value.

And do you seriously believe that threatening Google employees with being _fired_ would make them more creative? How terribly Randian of you.

I expect this sort of foolishness from Fox News. You? You know better.

If the XBox team had been required to show a working prototype in six months etc. they would all have been fired long before XBox started making money (which wasn’t until after the XBox 360 came out if I recall correctly).

For a public company, part of the definition of “successful” would include “profitable.” I believe that other than the three things that Bob mentioned in the article, NOTHING that Google makes money. Android is given away for free, right??

One would assume that someday they’ll be able to make money off of their split from Marketplace sales. Android Apps and future Google Music and Video sales cuts should also be profitable…it seems that Apple makes a boat-load from their iTunes marketplace.

Jim
April 11, 2011 at 2:32 pm

Not really although Apple does see some income. They maintain that their content businesses (their 30% cut from iTunes music, TV shows, books, apps and movies) is not much above break-even and is intended to primarily to drive hardware sales. However, they don’t make a lot from sales of AppleTVs so presumably the loss-leader approach to music has been padded in TV and movie sales. Still, Apple does make the bulk of its profits from hardware sales. Just like Google makes its dough from ad sales. Both can be threatened by new businesses and products.

dg
April 11, 2011 at 1:50 am

General Electric, a much bigger enterprise than Google, uses the “up or out” Cravath system for its managers. Managers are also responsible for a large cash return on the budget given to them at the start of each year; a below average return compared to others makes a manager more likely to be fired, while a negative return is a certain way to get fired. And each year the bottom 10% of all employees are culled. It creates a ruthless environment, but it mostly works to ensure that the organization keeps moving forward.

Bill H
April 11, 2011 at 7:52 am

Yes, but that doesn’t lead to new disruptive technology or business strategy. It merely hones the knife of existing businness sharp with incremental advances.
The part of GE that used to lead to real advances was the Corporate R&D group, but I don’t know if that’s still the case. Having a senior VP select a manager to go to asia and replicate an existing business model is not what I think Bob is referring to as startups. And, it doesn’t take 5 guys in an apartment to think up that strategy.
BTW, I was at GE 15 years, and left to join a startup after GE turned down an order. We flouished for 15 years in a niche market, then went broke in the next 5. I guess I have to admit that we should have been looking harder for another growth area. We did have fun, though.

Alan
April 11, 2011 at 1:52 am

“Name one business Google has purchased and taken to a new level of greatness.”

Android.

“Name one CEO or CTO hired by Google with an acquisition who is punching out products today.”

Could be. Android is certainly a successful platform and building platforms is important. But is it a business? It clearly has strategic importance to Google, but I don’t think it yet creates a mobile ad market that matches the overall profitability level of Google’s other platforms taking into account the full cost of Android. If you build a business that’s effectively a drag on earnings, is it really a success? I don’t think so.

Ben Thompson
April 11, 2011 at 5:16 am

Well android could be a business but I think it serves another purpose of shifting the mobile phone rapidly towards the internet. Google argue it does this to increase advertising pages, I think its more to do with stopping anyone else getting traction in that marketplace.

If you look at youtube, gmail google maps and android and you will see two things in all cases.
1) a product that is at least usable but at best average
2) a market in which no one else can compete due to the difficulty of competing against a reasonable free competitor.

I get your point about Google using free products to stifle competitors, but that has stopped neither Apple’s iOS or Hulu.

Ben Thompson
April 11, 2011 at 10:01 am

Neither break and in both cases actually prove my point.

Apple is a premium product. It sells an early adopter product (iphone, ipad) at a premium price. (the iphone launched well before Android appeared on the scene and the ipad is 12-18 months ahead of the first successful Android tablet as there isn’t one yet). As an aside Apple’s marketshare is probably safe as once people have invested money in iOS applications they are unlikely to start again.

Currently its the market share of symbian, microsoft and blackberry (non office use) that android is destroying.

Hulu is owned by the TV industry and provides online access to their content. As Google cannot licence that content its hardly surprising that Hulu seems to be doing well. There is a moat around the content that Google cannot breach.

Esteban Trabajos
April 11, 2011 at 1:54 pm

Bob,

I think Google made huge mistakes with Android so far. Letting Verizon put Bing as the default search engine (to this day, on Samsung phones!!!!), letting equipment vendors put their own skin on top of “naked” Android (which screws up patch update schedules) and not locking down hardware reference architectures (screen resolution, screen size, etc) hurt the “look and feel” of the brand.

I think they are starting to get smarter about the business. Once they do, they will be able to monetize it. As Eric Schmidt put it last year, if you have 100M Android phones out there, they can generate a small amount from each user, making it a multi-billion$$ business.

aztecnology
April 20, 2011 at 10:01 am

Let’s not be silly, iPhone and iOS have made Android what it is today. Andy Rubin himself said his baby would have died on the vine had it not been acquired. To Bob’s point, only a few organic developments in Mountain View generate any profit…

There are two forks in this road, and it isn’t likely that Google has the resources to follow both:
1) build the next killer ad app, to replace search. This may not even be ‘net based; who knows?
2) build any killer app that doesn’t siphon off the ad revenue from search; this is distinct from 1) in that it can’t be the killer ad app

Google only knows about selling ads; the gobblety gook (alleged tech stuff) about AdSense and PageRank is just horse shit. The only way Google avoids the Newspaper Problem is to find the next ad siphon.

Building an app “for sale”, a la 1-2-3, seems to be beyond the ken of these young-uns. Say what one will about Gates/Ballmer, but they have managed to build apps that are bought on their merits (however slim they may be).

Haniel
April 11, 2011 at 5:13 am

I thought the purchase of Doubleclick (including DART) was pretty smart. This effectively made Google the dominant leader in online advertising. Google should at least get credit for making some brilliant moves within their most profitable sector. It’s not like they just invented a cash-cow ten years ago and are simply resting on their laurels.

Kiaser Zohsay
April 11, 2011 at 5:32 am

>> because it creates the wrong
>> atmosphere — one that actually
>> encourages failure.

Larry, as well as Google at large, are following the Thomas Edison model here. Each failure is not something to be punished, but something to learn from, one more way not to make a light bulb. Bob’s comments make sense from a management perspective, but the Thomas Edison methodology make sense from an engineering perspective. Getting fired for not building a successful product in twelve months is not an incentive to succeed, its an incentive to not step up in the first place.

Edison tested more than 1000 materials for his light bulb filament before deciding on carbonized cotton, with those tests taking a few months in all. Google doesn’t come close to sharing Edison’s sense of urgency and that is going to hurt them in this internal startup strategy. Firing people who fail isn’t a management strategy, it is a success strategy. Googlers who aren’t willing to put their careers on the line SHOULDN’T be doing internal startups. Larry’s goal, frankly, is to keep those who would have left anyway, not to encourage every engineer to do his own little company. Who, then, would do the non-startup work? Weak ideas can and will be discouraged, pissing-off employees who might have been happy staying right where they were.

Darryl H
April 11, 2011 at 8:05 am

While I agree that 2 years to deliver anything is way too long, I would argue that threatening to fire individuals for failure stifles innovation. I believe that punishing individuals for attempting to innovate is a sure recipe for failure in the long run.

afraid to fail is what keeps bureaucracies in very slow motion. not the recipe for innovation, whether inside a company or one’s garage. success is less a matter of better mousetraps than pure luck. remember: “Accidental”

David G
April 11, 2011 at 5:53 am

I would argue that Gmail _is_ a product; it is sold as such to the City of Los Angeles as they transition away from GroupWise. OT, it amuses me to see the new features added to Gmail that we’ve had in GroupWise forever.

Agreed. But they do have both paying customers, and a plan to grow that offering. My management were invited to a pitch to about twenty local government I.T. groups, using the Los Angeles deal as the proof of concept. Frankly, we all find running email systems to be a pain in the butt, and if Google can show they can keep their cloud secure (and less expensive – which it is), we’d be all for it. Lastly, e-discovery is a huge pain in the butt, and if anyone ought to be able to conduct easy searches….

Now, the whole Gmail-as-a-paid-service thing may or may not be high on Larry’s list of goals. But if it were, it gives them a solution to the problem you point out that their revenue is almost solely one big egg in one basket.

AL
April 11, 2011 at 6:10 am

Bob,

The way you wrote this, it sounds like I wrote it. Especially the part about holding the engineers feet to the fire (yes, I am an engineer myself).

2 years is an *eternity*. And you’re right, the engineers are not raising money, hiring people, etc… all they are doing is *focused development*. I have been in this mode twice, once very successful, once merely “worthwhile” (made out OK but not lighting cigars with $100 bills).

Also the part about accountability. Quite a few people at Google have the “job for life” mentality — comfy office space, meals served, stock options, etc… They need to re-discover that “we could be laid off at any moment” mentality, that hunger, that “my job & our corporate survival depends directly (although not solely) on my personal contribution”. The best engineers (and employees for that matter) don’t need to be told that, they just know it.

one thing i’ve seen is a huge disconnect between upper management desiring innovation through new products/business models yet lower management just handing out feature requests and bug reports.

i’m not 100% sure what the source of this disconnect is, but i have the faint idea that various intervening managers’ quarterly bonuses and commissions are tied to sales/revenue and they don’t have the patience or risk tolerance to assign R&D to things that may not pay off, and even if they do pay off, it might be when the manager is no longer in that position and they won’t benefit anyway. they always take the faster-paying bet on the proven product instead.

however, i wouldn’t assume google works like that, i’m just observing from a couple of places i’ve worked at.

BAZZ
April 11, 2011 at 7:09 pm

Andy Warhol said “15 minutes…. ” which has a corollary in corporations one idea maybe two at most and then its milk them for what their worth!

Xerox could not see the usefulness of GUI. It remains in the copier business — would you Robert X write a blog about its lack of success in inventions new horizons of commerce or stagnate growth? Then why Google?

What Google Ads is is a money machine. What Google’s management does with the excess money is throw darts at ideas to use that excess money. The management has only a normal view of where the world will be next year. For every Ben Franklin there are millions that cannot think cannot see the future but live their lives.

What you mistake as excellence is just a lucky break a single insight.
Provided the ads keep the money rolling in they can throw it around. They could get lucky but there is no vision.

BAZZ
April 11, 2011 at 7:34 pm

Proof from the future —

Apple co invented ( gave idea to ??) LightPeak with Intel for EXTERNAL connections
Intel loves LightPeak for INTERNAL PC connections.
The internal is the future for fast 100G/s speeds.
Super fast computer server stations that Intel will make thanks to Apple’s lack of insight!!

John
April 12, 2011 at 7:18 am

What if Apple does not want to make servers?

There is limited growth and limited profit in the design and sale of servers. Apple has done the math and decided they can make more money doing something else.

Ronc
April 12, 2011 at 1:28 pm

Luck is the preparation for, recognition of, and seizure of opportunity.

Gates wasn’t in any way prepared for DR’s saying NO to IBM. He then had to go and steal QDOS from Seattle Computer. It was pure luck, nothing more. That he, and others, would attribute the success of MS to anything else is further proof of delusion. Edison is sui generis.

Francis
April 12, 2011 at 1:29 am

There is some company I read about, I can’t remember where, that keeps splitting. Each new product line becomes it’s own independent division, with even it’s own building. It doesn’t have to be far away, but it does have to be geographically separated from the others by at least a parking lot. Apparently this keeps the level of innovation and the profit margins very high. Morale is high too. It’s like working for a small company, with the capitalization and synergistic resourcing of a big company.

Grunchy
April 12, 2011 at 1:49 pm

Berkshire Hathaway?

John
April 12, 2011 at 7:14 am

Google is suffering from a problem that is common in the corporate world. Here is the problem. You have a successful company that generates BILLIONS in net profit each year. Okay fine. You know you need to grow the company so in the eyes of Wall Street it appears you are “not stuck.”

Lets assume you can come up with a really good business idea. At its full potential it will make $10M net profit. Sounds great, right? For a company like Google $10M more profit is really noise that can be lost in a rounding error. Lets assume you can find 10 such business ideas and make $100M net profit. That is still noise to Google.

Finding a $1B business requires mostly luck, being in the right place at the right time, etc. There very few $1B ideas in all of history.

To find one $10M, you may need to try 10-20 ideas. Think about that.

What Google needs to do is invest in the creation and development of 100’s of business ideas. Each will need to be cultivated, monitored, and regularly evaluated. Any idea that can not be profitable needs to be discontinued as soon as possible. Don’t waste too much money on chasing ideas that won’t make it. In the end Google should keep the good money makers that have a good ROI or ROE. They should sell or spin off the rest.

I have several business/product ideas that could be of interest to Google. Are you interested Larry?

Bill H
April 12, 2011 at 8:49 pm

” Any idea that can not be profitable needs to be discontinued as soon as possible.” That relates to my comment way up above, and is a root problem in a large organization. Any one of a series of middle managers can have the lack of vision that allows them to determine that ‘your idea can’t be profitable’, before it ever gets to Larry’s desk.

cloudsandskye
April 12, 2011 at 11:53 am

Some of the reasons people become employees are steady income and job security, such as they are. If they wanted to be entrepreneurs, they would be entrepreneurs. Threatening to fire people who fail at an internal startup project almost guarantees nobody will volunteer for such a project. What would be the point, since most startups fail? Instead, you get people who hide in their cubicles obsessed with maintaining the status quo, never venturing beyond to risk anything, because to do so almost surely will mean getting fired.

Successful companies allow people to fail because it provides valuable experience that can help the next internal startup succeed by avoiding the mistakes of the past and builds a group of experienced people to draw on for future internal startups. Otherwise, if people who fail are always fired, you will never have any experienced people to draw on for such projects. Instead, all you have to draw on for internal startups are the least experienced amateurs making the same mistakes that could have been prevented if some experienced failures were sprinkled into the group.

Ronc
April 12, 2011 at 1:44 pm

Yes, thanks for the insight. In business, the owners voluntarily embrace a risk to reward ratio; trying and failing is part of the game and the way they gain experience.

asmiller-ke6seh
April 12, 2011 at 1:27 pm

There’s a story I have heard, which may or may not be apocryphal, about a reporter who was Interviewing Henry Ford, who was giving the reporter a tour of Ford Motors.

The story goes that, as Ford was walking the reporter around, the reporter noticed a man, who was sitting with his feet up on his desk in a mostly emply office, appeared to be staring out into empty space.

The reporter asked why Ford would keep a man on the payroll who appeared to be doing nothing.

Maybe Larry page understands this principle, and maybe that is what Google has had a dearth of — people who are actually paid to think so that, every once in a while, maybe another good idea will come forth and make Google ANOTHER billion dollars. It only takes one every once in a while.

“Well,” said H. Ford, “that man is not doing ‘nothing’. I pay him to sit and think.”

“Why would you do that?” quipped the reporter.

“Every once in a while, that man comes up with an idea that saves us a lot of money – far more than it costs me to pay his salary.”

Ronc
April 12, 2011 at 1:48 pm

I wonder what Ford would have done if the guy had been staring at a computer screen instead of out the window.

NoTalentHack
April 13, 2011 at 8:59 am

“..full release in 9-12 months, tops. … [otherwise] They should be fired. Now there’s a proper incentive to succeed, not this fantasy startup thing.” Speaking of fantasy startups, where’s the output of from the Cringely Startup Tour, which, I believe was announced back in February 2010, some 14 months ago.

Fired? That’s an unusually creepy way to ensure people don’t bother to opt in unless they’re delusional or have visions of hail mary passes.

Maybe use the new stuff they’ve found about incentives: you say that there’s a startup bonus there on the horizon should you succeed, but it disappears if you don’t meet certain success parameters (sort of like working on something in your garage, but you don’t lose your job downtown if your garage burns down). You still have your job the next day, but you knew all along that the pay advance was tied into your putting everything into a smart idea.

Fear of getting fired is a good way to cut down on good ideas from less committed people. In a Google bubble, it might be more about smart ideas than simple blind commitment, since despite the myth, blind commitment will only get you to the door, you still have to have the right key to get in.

Ronc
April 14, 2011 at 1:50 pm

I agree it seems a bit creepy…but I don’t recall Bob saying anything about “opting in”.

> The internal startup founders, for example, are given two years to make their
> business work — two years before they have to deliver anything. That’s crazy.

No, Bob. What’s crazy is to expect that any product incorporating interestingly new technology can be made in less than 2 years. Anything simpler is most likely already done by hordes of student hackers and dotcom wannabes.

Your idea of startup is a dot-com, which doesn’t create any new technology worth speaking about. Overwhelming majority of dotcoms are dying quickly and nobody remembers them. Few manage to strike fancy of the public, and then ride the network effect to the riches. None of them advanced technology a tiny bit. None of them has lasting value other than brand name.

To make anything truly lasting and having an impact beyond offering yet another way of wasting time on-line you need to work hard for years. Think GNU. Think Linux. Think Apache. Think microprocessors. Think Internet backbones. The dot-coms are merely visible froth on this hidden ocean of technology which took way more talent, time, and money to design than one can imagine – but without which none of these silly Facebook games would be possible.

Bravo. Having been in the middle of the dotcombust, with a company which had an interesting take on servlets before any of the frameworks existed, but the dumbest business plan imaginable (they thought copyright holders were stupid!), yeah, they’re basically leaches.

Cyclist
May 5, 2011 at 12:22 am

Isn’t Android a goldmine for Google? Surely it’s not just a page view generator – dominating the market and not making a penny, possible? Few short years ago, mobile business was The business to get into. Google did it and is beating the competition. However, in defense of this article: what next?

Anyone can get onto and operate on the Internet. However if you don’t follow the rules the world can now ignore and cut you off. In time my email provider’s job will get a lot easier when they start accepting email from only known, trusted mail domains.